Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
As per press, Cipla closed two of its four domestic marketing divisions (Protec and Omnicare) to
consolidate and improve productivity. This we believe would augment Cipla's initiative to improve
profitability (eg reducing its presence in low-margin ARVs and capacity optimisation at Indore
SEZ).
Focus on profitability
As per press (Economic Times, dated 7 Sept 2011), Cipla closed two of its four domestic
marketing divisions named Protec and Omnicare, which sold generic products generating
revenue worth Rs 5 bn. Cipla stated this measure was to improve productivity through better
efficiency of the distribution channels. Management further stated it would not be cutting down
on any of its products and would accommodate the staff from these divisions in other
departments of the company.
Also, in its FY11 annual report, management commented it was looking to consolidate and
rationalise its international business and strategies. In this effort, Cipla is looking to forge
partnerships and alliances with large generic companies for product and market development
(in the developed markets).
In 1QFY12, we had also seen Cipla reducing its presence in low-margin Anti-Retro-Virals
(ARVs) product range and hence improving margins from 15.4% in 4QFY11 to 21.2% in
1QFY12. This was also due to operating leverage benefits from its recently commercialised
Indore SEZ.
We note that Cipla employs 7,000 sales representatives, the largest in the industry, and sells
over 2,000 products in 65 therapeutic areas. It has the 2nd largest market share in domestic
formulations (post Abbott acquired Piramal Healthcare) and recorded revenues of Rs 28.2bn
in FY11.
Cipla's management, in its recent annual general meeting (AGM), showed confidence in the
commercialisation of inhalers in EU in next 2 years, which was a key positive. Other key
highlights were 1) capacity optimization in Indore SEZ 2) higher growth expected from
domestic sales 3) capex focus on API. Management also refuted 'sell out' speculation.
We re-iterate our Buy rating on Cipla with a TP of Rs365
We note that while Cipla's 1Q12 revenue growth was muted at 9% yoy, we expect growth
momentum to accelerate for the remainder of the year on the back of: 1) contribution from
Indore SEZ ramping up (revenues of Rs1.48bn in 1QFY12 vs. Rs1.1bn in FY11); 2) 60% of
the Cipla's domestic product portfolio is focused in the relatively faster growing chronic
segment; and 3) API supplies to drive growth.
We expect the margin improvement witnessed in 1Q12 (580bp qoq increase in core EBITDA
to 21.2%) to continue led by better product mix; improved utilization at the Indore SEZ facility
and increased contribution from API business
We re-iterate our Buy rating with TP of Rs365 based on 21.4x FY13F PE (i.e. at 10%
premium to peers)
Risks - NPPA /DPCO overhang remains
Cipla has some pending legal cases on account of alleged overcharging in respect of certain
drugs under the National Pharmaceutical Pricing Authority (NPPA) / Drug Price Control Order
(DPCO). As per the NPPA/DPCO, the aggregate amount of the demand notices received is
about Rs15.4bn (inclusive of interest), while the company stated the amount to be Rs12.3bn
(in FY11 AR). The company has been legally advised that based on the directions given by
the Supreme Court; there is no probability of the demand becoming payable by the Company.
Any unfavourable outcome in these proceedings could have an adverse impact on the
company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
As per press, Cipla closed two of its four domestic marketing divisions (Protec and Omnicare) to
consolidate and improve productivity. This we believe would augment Cipla's initiative to improve
profitability (eg reducing its presence in low-margin ARVs and capacity optimisation at Indore
SEZ).
Focus on profitability
As per press (Economic Times, dated 7 Sept 2011), Cipla closed two of its four domestic
marketing divisions named Protec and Omnicare, which sold generic products generating
revenue worth Rs 5 bn. Cipla stated this measure was to improve productivity through better
efficiency of the distribution channels. Management further stated it would not be cutting down
on any of its products and would accommodate the staff from these divisions in other
departments of the company.
Also, in its FY11 annual report, management commented it was looking to consolidate and
rationalise its international business and strategies. In this effort, Cipla is looking to forge
partnerships and alliances with large generic companies for product and market development
(in the developed markets).
In 1QFY12, we had also seen Cipla reducing its presence in low-margin Anti-Retro-Virals
(ARVs) product range and hence improving margins from 15.4% in 4QFY11 to 21.2% in
1QFY12. This was also due to operating leverage benefits from its recently commercialised
Indore SEZ.
We note that Cipla employs 7,000 sales representatives, the largest in the industry, and sells
over 2,000 products in 65 therapeutic areas. It has the 2nd largest market share in domestic
formulations (post Abbott acquired Piramal Healthcare) and recorded revenues of Rs 28.2bn
in FY11.
Cipla's management, in its recent annual general meeting (AGM), showed confidence in the
commercialisation of inhalers in EU in next 2 years, which was a key positive. Other key
highlights were 1) capacity optimization in Indore SEZ 2) higher growth expected from
domestic sales 3) capex focus on API. Management also refuted 'sell out' speculation.
We re-iterate our Buy rating on Cipla with a TP of Rs365
We note that while Cipla's 1Q12 revenue growth was muted at 9% yoy, we expect growth
momentum to accelerate for the remainder of the year on the back of: 1) contribution from
Indore SEZ ramping up (revenues of Rs1.48bn in 1QFY12 vs. Rs1.1bn in FY11); 2) 60% of
the Cipla's domestic product portfolio is focused in the relatively faster growing chronic
segment; and 3) API supplies to drive growth.
We expect the margin improvement witnessed in 1Q12 (580bp qoq increase in core EBITDA
to 21.2%) to continue led by better product mix; improved utilization at the Indore SEZ facility
and increased contribution from API business
We re-iterate our Buy rating with TP of Rs365 based on 21.4x FY13F PE (i.e. at 10%
premium to peers)
Risks - NPPA /DPCO overhang remains
Cipla has some pending legal cases on account of alleged overcharging in respect of certain
drugs under the National Pharmaceutical Pricing Authority (NPPA) / Drug Price Control Order
(DPCO). As per the NPPA/DPCO, the aggregate amount of the demand notices received is
about Rs15.4bn (inclusive of interest), while the company stated the amount to be Rs12.3bn
(in FY11 AR). The company has been legally advised that based on the directions given by
the Supreme Court; there is no probability of the demand becoming payable by the Company.
Any unfavourable outcome in these proceedings could have an adverse impact on the
company.
No comments:
Post a Comment